The United Arab Emirates

Fiscal Policy of The UAE

Analysis The united Arab Emirates has a very broad and expansionary fiscal policy that promotes high growth for the nations GDP. The rulers of the UAE effectively control most utilities including the most important(profitable); oil. This has been the source of the UAE's ability to invest in numerous projects in the last few years in order to diversify thier economy. The article provided(Rulers of the silk road) gives just one example of the UAE's ability and willingness to broaden it's economc horizons by identifying a particular demand, in this case aviation, and then taking the necassary risk by investing in the supply of capital such as airplanes and airports and all that entails.

Summary The overall indicatons of the UAE's use of government revenue to invest in the capital supply of aviation would suggest a very hands on fiscal policy that is geared towards national growth and rational self intrest by 1) stabilizing prices, 2) keeping unemployment low, and 3) promoting high and sustained economic growth. On the surface it would seem that the short term gains warrant active expansionary fiscal policy but as we will explore further, the broader long-term implications may have an adverse affect.Implications To better understand the long term consenquences of an expansionary agenda let us examine how the UAE is enacting fiscal policy to promote the three economic goals by taking each goal one at a time and viewing it through the dichotomy of Hands-on(actve),or Hands-off(freemarket) fiscal policy. It is understood that there is no such thing as a hands-off fiscal policy as the term "fiscal policy" explictly states that there must be government intervention to some degree for it to indeed be considered "fiscal policy", but for our purposes here we will simplify the scope by viewing it through the lense of these two competing ideologies.High and sustained economic growth The evidence is overwhelming that the UAE employs Hands-on fiscal policy by the fact that Dubai's Sovereign Wealth fund financed and owns the Emirates Arlines as stated in the attached article. A more Hands-off policy would have allowed and encouraged private firms and individuals to take the lead and for the government to impede as littles as possible. In fact, there probably would have been much more turmoil and complications with this approach but the seperation of the economy from state would be a much healthier long-term goal. The point is conceded that the overall goal of high and sustained economic growth will be achieved by Dubai using Hands-on fiscal policy, but the argument remains that the long-term ramifications of Hands-off fiscal policy is the more desirable systemic process that should be pursued.Low unemployment By using the Hands-on approach, the UAE has used the revenues gained by such utilities as oil to inject capital into the aviation market to meet the demand of more and more fliers. The production of such capital has led to even more demand in the skilled labors market increasing the need for more airline pilots mechanics and construction workers. The Hands-off application would have had much of the same desired affects, such as keeping unemployment low and increasing demand in a number of labor markets, but without the implicit drawbacks of a population tied to the state, hopelessly dependant on what ventures the government may pursue next, never bieng able to explore the possiblities of ones own talents and the depths of ones own potential. The results of the Hands-on policy are clear, but the costs are far from clear.Stable prices Price stability for the consumer aviation market wiil be achieved if not lowered by the competiton implemented by Emerites's cash fueled entrance into the market. Prices will rise in the skilled labour market as the need for airline mechanics will rise, and also in the materials markets where building materials such as concrete and steel are sure to rise. The Hands-on policy of Dubai will undoubtedly cause aggragate inflation to rise. This is a short-term cost in order to achieve the long-term goals of economic success. The Hands-off theory makes no such claim that inflation will never be a concern, indeed in order to meet demand, supply must be increased which in turn means prices must rise. Innovation, among other things, is key in the Hands-off theory in order for prices to remain low. Increasing technological advances puts less strain on the supply meeting demand and ultimatly using less finite resources. Innovation is the unintended consenquense of a dynamic free market systemic process and has little room to be effective in the very narrow and limited vision of the Hands-on approach. Overview At first glance it would seem that the UAE is on the road to a vibrant economy where prices are low, employment is at full potential and growth is high and the prospective future growth is higher. An in depth analysis would confirm that indeed the UAE, using Hands-on active fiscal policy, is truley on track to achieve all the stated economic goals. But at what cost? To rationally and articulatly state the objections to the results achieved by the UAE is beyond the confines of this website.